A key Democratic member of the Senate Finance Committee has introduced legislation that, if enacted, would provide insurers and agents even more incentives to offer products for consumers to save for retirement.

Sen. Max Baucus, D-Mont., ranking minority member of the panel, titled the bill the Savings Competitiveness Act. The bill, S. 2431, was introduced March 16.

Some of the provisions are included in pension reform legislation now being reconciled by a conference committee. But other proposals in the bill would allow a small employer tax credit for employer contributions to new retirement plans and a 50% matching contribution for lower-income taxpayers, provisions that would make them even more attractive to the industry.

Other provisions would offer a $50,000 exemption from minimum distribution requirements for retirees with modest savings, and simplified distribution rules for individual retirement accounts and 401(k) plans.

A provision in the Baucus bill included in the pension reform legislation now being reconciled by a House-Senate conference committee would expand the availability of payroll deduction retirement savings and automatic enrollment in tax code Section 401(k) plans and other payroll deduction retirement savings arrangements.

But the Baucus bill also would create “secure” IRAs, with limited investment options and fees to simplify investment decisions and educational efforts. The bill also creates Young Saver’s Accounts, in which parents can set up Roth IRAs for their children under age 18. Contributions to the child’s account will apply toward the parents’ annual limit. The accounts become ordinary Roth IRAs when the child turns 18. Savings can be used penalty-free for first-home purchases and college expenses as well as retirement.

“The bill provides savings for workers today, savings for the next generation and savings for the nation,” Baucus said. “Public and private savings are key to our economic stability, and that is the core of competitiveness.”

Among its provisions, the bill:

–Prohibits amounts held in plans from being taken into account when determining eligibility for means-tested assistance programs.

–Directs the Secretary of the Treasury to develop a form that will allow taxpayers to have their refunds deposited directly to their IRAs.

–Exempts $50,000 from an individual’s required minimum distribution calculation for individuals with a total savings of less than $200,000 in all of their IRAs, retirement plans and HSAs.

–Applies IRA-applicable exceptions from Code section 72(t) (i.e., distributions for health insurance premiums for the unemployed, qualified higher education expenses and first-home purchases) to all qualified plan distributions.

–Eliminates the higher penalty tax (25%) for distributions from SIMPLE Plans and SIMPLE IRAs in the first two years of participation.

–Permits direct rollovers from plans to Roth IRAs.

Key Provisions

The Savings Competitiveness Act

–Creates a tax-free savings product that would permit parents to use part of their permissible Roth contribution limit to make contributions to a Roth IRA for their child.

–Includes the automatic enrollment provisions currently pending in S. 1783, the Senate-passed “Pensions Security and Transparency Act of 2005.”

–Provides small employers (25 employees or less) with a tax credit of 50% of employer contributions to a new qualified defined contribution or defined benefit plan.

–Increases the maximum contribution rate to 10% of compensation employers can make to SIMPLE plans and IRAs.

–Applies “basis first” approach to taxation of distributions from a Roth 401(k) or Roth 403(b) account.